Are the principles and laws of the multilateral trading system, as embodied by the World Trade Organization, still relevant today?

by Eliana Baey*

 

1. INTRODUCTION
2. STALEMATE IN NEGOTIATIONS
3. TENSIONS BETWEEN CHINA AND THE UNITED STATES
4. INCREASED USE OF PTAs

5.CONCLUSION

 

1. Introduction 

The principles and laws of the multilateral trading system are embodied in the organisation of the World Trade Organization (WTO). The purpose of the WTO  is to act as a mechanism for governments to negotiate common policy disciplines to reduce trade barriers, both foreign and domestic, and to create freer and smoother trade.[1] The WTO is guided by five principles, which provide a general framework for working towards the eventual aim: trade without discrimination; freer trade through negotiation;predictability through binding and transparency; promoting fair competition; and encouraging development and economic reform. The WTO is also governed by laws which provide a more specific direction by setting out what member States should or should not do. These laws exist within the articles of the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). As these principles and laws are foundational to the WTO, it is necessary to address whether they should be overhauled to fit the changing ecosystem of international trade. This blog will discuss the challenges the WTO is facing and whether the principles and laws which currently govern it are relevant in addressing them. Section 2 will discuss the stalemate in negotiations embodied by the Doha Round and how affirming the principle of freer trade and reforming the WTO’s laws will strengthen the WTO’s ability to fulfill its fundamental purpose. After this, Section 3 will evaluate the effect of tensions between the United States (US) and China and how a timely reminder to adhere to the principles of free trade and predictability is necessary to minimize the spillover effects of sour relationships between more powerful MS on the functionality of the WTO for other MS Finally, Section 4 will tackle the increased use of preferential trade agreements (PTAs) and why PTAs are in fact a successful example of the WTO adhereing to its principles through its laws to help mediate between interests of all of its MS. This blog will conclude that the principles of the WTO remain relevant and should be reaffirmed, given their foundational and hermeneutical  importance for the framework of the multilateral trading ecosystem. However, there is a need to change how these principles are applied to rise to the challenge of enforcing obligations on MS and the increased use of PTAs.

 

2. Stalemate in Negotiations

The stalemate in negotiations is the most obvious problem within the WTO as it affects the ability of the organization to fulfil its raison d’etre. The stalemate in negotiations, most prominently in the Doha Round, appears to undermine the feasibility of the principle of freer trade through negotiation. The Doha Round – started in 2001 and who’s completion were set for 2005- has been stalled after the 2008 trade ministers’ meeting in Geneva collapsed. The most contentious issue has been the differences between the rich and developing nations on agricultural subsidies.[2]  Lord Brittan argues that, in contrast to the Uruguay round that achieved significant reductions in both tariff and non-tariff barriers, the Doha Round’s objectives consist of leftover trade areas that States could not come to a consensus on. [3]  Hence, rather than altering the underlying principle of negotiation, resolving the impasse requires a breakthrough in discussions and negotiation methods. Some success was achieved at the 9th Ministerial Conference in Bali, where the 2013 Trade Facilitation Agreement -the first multilateral treaty under the WTO- was agreed. Two-thirds of the WTO membership has successfully ratified the agreement. In addition, the concerns of Least Developed Countries (LDCS) have benefitted the greatest through recent negotiations. The 6th ministerial conference resulted in duty-free and quota-free market access for 97% of products from LDCS in all developed countries, except for the US. [4]  At the 8th ministerial conference, noting the failure of previous negotiations, the “Elements for Political Guidance” document was created. The document altered the approach to negotiations, placing the focus on areas of consensus within the Doha Declaration.[5] Hence, contrary to the apparently gloomy outlook of the Doha Round, LDCS have been encouraged to develop and economically reform, and freer trade has been established gradually through negotiations.

Despite previous negotiation successes, threats to freer trade still exist post negotiations. 2019  statistics show historically high levels of trade restrictions by WTO members and is evident in the increase of 27% since the previous annual overview.[6] Contrary to freer trade, the statistics prove that trade is becoming more restricted, highlighting the inherent challenges faced by a multilateral trading system. The move towards more protectionist policies suggests a need for the WTO to mete out more severe legally binding  measures. In particular, actions need to be taken by the G20, the world’s wealthiest nations group, which have been introducing high customs duties and new import bans.[7]  The success in negotiations for LDCs and the Bali Ministerial Conference suggests that the principle of freer trade through negotiations is still an essential principle at the WTO, and there is a need to reform the WTO’s laws to enforce adherence to freer trade post negotiations. However, as a recurring issue within international law, those who have the most power tend to control the rules of the game.

 

3. Tensions Between China and the United States

As 2 countries who wield significant power over the international trade arena, bilateral tensions between China and the US inevitability spillover onto the WTO, affecting the its functionality for other MS. Tensions and the erratic nature of the relations between China and the US -especially regarding the dispute settlement process- are undermining the principles of freer trade through negotiation and predictability, particularly, by  binding obligations and transparency. In the previous decade, Bown has argued that the WTO’s dispute settlement process, found in Articles 22 to 23 of the GATT, has successfully diffused tensions between the US and China. [8] This  dispute settlement system  gave the process and institutions greater legitimacy where disputes were made transparent. However, the relationship between these two States has worsened, as is evident from the protectionist measures that they have mutually enacted. [9]  In 2019, the trade-restrictive measures imposed by the US as additional duties on products from China accounted for 46.7% of protectionist measures imposed while the measures implemented by China on tariffs on imported goods from the US accounted for 11.4%.[10] Recently, this has culminated in the Trump administration refusing to approve members of the Appellate Body. The US claims that, despite transparency being a legal obligation embedded in Article 10 of the GATT and Article 63 of the TRIPS, China “disregards many of its WTO transparency obligations.[11] Charnovitz suggests that the US is vetoing appointments to the Appellate Body based on the claim that China has defaulted on its WTO obligations and the court’s apparent bias towards China.[12] However, Bown and Keynes suggest that a  more likely reason is the US’s fear that the Apellate Body will constrain the use of trade-restrictive measures, specifically against China. [13] As a result, the disputes settlement system can no longer mete out predictable consequences for members that default on their obligation to promote freer trade. [14] As such, it can be argued that the US is stalling the appointments to the appellate body to prevent being legally required to increase the transparency of its actions, at the expense of other countries that use the disputes settlement process.  Both hypothesis, China’s supposed  disrespect for its transparency obligations and the US’s alleged attempt to reduce the predictability of the system suggest that there is a need to re-affirm the WTO’s principles of free trade through negotiation and predictability, particularly by binding obligations. Solutions may include the introduction of  laws that prevent the US and China from abusing the system as a way to achieve their political aspirations. This would ensure, as much as possible, a level playing field for all MS.

 

4. Increased Use of PTAs

Despite extensive discussions and efforts to achieve a level-playing field, the option of PTAs is arguably a flaw that runs contrary to the WTO’s principles but has become part of the WTO through its laws. The legality and increased use of Preferential Trade Agreements (PTA) appears to be contrary to the principle of trade without discrimination and promoting fair competition. This principle  is closely associated with the “Most-Favoured Nation (MFN)” clause, found in Article 1 of the GATT. The MFN clause requires a country to provide any concessions, privileges, or immunities granted in a trade agreement to all WTO members, levelling the playing field between MS and promoting the idea that power is less important in WTO negotiations. The average tariff on all products dropped from 40% pre-GATT[15]  to the current average of 5%. [16] As such, the application of this principle has successfully reduced tariffs and encouraged free trade. However, the MFN only covers surface level obligations. States have expressed wishes to deepen the relationship with their trading partners. PTAs, addressed in Article 24 of the GATT, provide an opportunity to do so. PTAs help increase market access, economies of scale, and competitive advantages.  Narlikar and Priyadarshi suggest that  PTAs are a threat to LDCs where their limited production capabilities leave them out of discussions. [17] However, the aim of the WTO is not to completely eradicate tariffs. By keeping the delicate balance between what is fair and unfair -such as limiting the use of PTAs through sanctions included under Article 24- the WTO generally adheres to the principles of trade without discrimination and tries to promote fair competition.

To aid the LDCs, the WTO has encouraged positive discrimination to help reduce the inequalities between States. As part of the 2013 LDC package agreed at the Bali Conference, the agreement on Rules of Origin [18] accorded protection to LDCs against the demanding conditions of particular preference schemes. In addition, guidelines were created to improve the transparency and simplicity of rules and keep the required value-added to products as low as possible.  LDCS are also favoured with  preferential market access to trade in services. For the above, the concessions given to the LDCs have addressed concerns about discrimination resulting from PTAs. To achieve this, , recognition should be given to the WTO’s role in mediating the interests of MS. In addressing the increasing use of PTAs, the WTO has shown strong adherence to its principles and hence adapt their applicability in 21st-century trade discussions.

 

5. Conclusion 

Ultimately, while the principles of the WTO are mostly still relevant in today’s context, further reform to its  statutes is required to reinforce the objectives of the WTO and the obligations of its members. The success in recent negotiations, especially in aiding LDCs in development and economic reform-and the WTO’s adaption to the increased use of PTAs by taking into account the objectives of all MS- highlights the evergreen nature of the principles. However, the growing number of protectionist trade measures and the US’s actions in its trade war with China has revealed the need for an adjustment in its legislation to include legal sanctions.  Legislating will ensure that the actions of defaulting parties do not disadvantage countries that adhere to their WTO obligations.

________________________________________________________________________

*LLB, International Law and Globalisation, University of Birmingham

[1] Bernard M. Hoekman &, Petros C. Mavroidis World Trade Organisation : Law, economic and politics ( 2nd edn, Routledge 2016 ) 1-3

[2] Ved P. Nanda, ‘Selected Aspects of International Trade and The World Trade Organization’s Doha Round : Overview and Introduction’ (2008) 36 Denv. J. Int’l L. & Pol’y 255

[3] Craig VanGrasstek,  The History and Future of the World Trade Organisation (WTO 2013) 549

[4] Amrita Narlikar & Shishir Priyadarshi, ‘Empowering the poor? The successes and limitations of the Bali Package for the LDCS’ (2014) 35(6) Third World Quarterly 1051,1058

[5] WTO Elements for Political Guidance (1 December 2011) WT/MIN (11)/W/2

[6] WTO Annual Trade Policy Review Body Report Overview of Developments in the International Trading Environment by the Director General (29 November 2019) WT/TPR/OV/22 7

[7] WTO Report on G20 Trade Measures (21 November 2019) WTO/OMC

[8] Chad P Bown, ‘U.S. – China Trade Conflicts and the Future of the WTO’ (2009) 33 Fletcher F World Aff 27

[9] Tolulope Anthony Adekola,’US-China trade war and the WTO dispute settlement mechanism’(2019) 18(3) Journal of International Trade Law and Policy 125

[10] WTO ( n 6) 7

[11] Steve Charnovitz, ‘Grading Trump’s China Trade Strategy’(2019) 10 European Yearbook of International Economic Law 217, 222

[12] Ibid

[13] Chad P. Bown & Soumaya Keynes, ‘Why Trump Shot the Sheriffs: The End of WTO Dispute Settlement 1.0’ (2020) Journal of Policy Modeling

[14] Hunter Nottage &  Thomas Sebastian, ‘Giving Legal Effect to the Results of WTO Trade Negotiations: An Analysis of the Methods of Changing WTO Law’ (2006) 9(4) Journal of International Economic Law 989

[15] National Bureau of Economic Research, The GATT’s Starting Point: Tariff Levels Circa 1947(Working Paper 21782, 2015) 13

[16] WTO/OMC, ITC & UNCTAD, ‘World Tariff Profiles 2019 : Applied MFN Tariffs’ (2019) < https://www.wto.org/english/res_e/booksp_e/tariff_profiles19_e.pdf> accessed 1 May 2020, 8-13

[17] Preferential Rules of Origin for Least-Developed Countries – Ministerial Decision of 7 December 2013(11 December 2013) WT/MIN(13)/42  WT/L/917

[18] Rules of origin is the criteria needed to determine the country that the product is considered sourced from. This affects subsequent duties and restrictions on the product.